ABSTRACT

Introduction Risk pervades every dimension of our lives, personal and professional. In every element of our daily routine we encounter and manage risk to a greater or lesser extent successfully. Each of these encounters with risk is different and we probably employ different approaches to handling these. There are arguably, however, a series of common rules or steps that we might take in handling such decisions, usually based on our previous experiences of something similar - in other words a Contingency Approach. Supply chains also exhibit risk in a variety of dimensions and rely on decision makers, individuals or groups, to take appropriate decisions to manage these effectively on behalf of the other partners in the chain. Risk in the supply chain is not a new phenomenon. Business organizations have always been exposed to the failure of a supplier to deliver the right quantity, at the right time, to the agreed quality and at the agreed price. Different organizations have developed different strategies and tactics to manage these risks and have typically been successful in doing so, although not universally so as business cases such as Enron demonstrate. What has changed to make risk management in supply chains worthy of greater attention? There are arguably three key developments which enhance the case for increased attention to the management o f risk in supply chains:

1. Strategies and structures relating to supply chains are evolving more rapidly in the search for competitive advantage.2. Technological changes provide opportunities to alter the shape and the relationships within supply chains.3. Increased exposure to global competitive pressures means that most business organizations are exposed to new and additional risks that may impact more rapidly and with more severe consequences than previously. These characteristics arguably lead to each individual supply chain being unique in certain respects. Equally, this uniqueness may require unique approaches to the management of the risks involved. The approach taken in this chapter is to argue that despite each supply chain being unique, exposed to unique risks and

requiring unique solutions, there is significant value in seeking to map the common or shared characteristics onto a Framework. This chapter seeks to justify and establish such a Contingency Framework.Initially the key sets o f factors influencing risk in the supply chain will be examined to illustrate the nature of their impact on the risk exposure to the members of the supply chain itself. The meaning of the terms risk and uncertainty in the context of the supply chain will be assessed leading to a working definition of these terms for the Framework. The nature of the Contingency Framework proposed, is itself examined to illustrate the contribution it may make. The key dimensions of the Supply Chain Risk Management Framework are identified and developed throughout the remainder of the chapter. Supply Chain Revolution Discussions on risk and risk management often fail to fully recognize the dynamic and reactive nature of risk and the associated decision processes in business in general (see Ritchie and Brindley, 2000). Moreover, recent developments in technologies, business structures and competitive practices have tended to enhance this dynamism, accelerate the rate of change and magnify the scale of the commercial consequences (see Mentzer et al, 2001). Consideration of risk in the supply chain provides a good example of this dynamism and the consequences being experienced in many aspects of a business organization’s activities.Risks within the supply chain may be categorized along a particular continuum (see Diagram 3.1). Paulsson and Norrman (2003) identified three points on this continuum as Operational Disturbance, Tactical Disruption and Strategic Uncertainty. These descriptors are essentially related to differences in the type of risk rather than seeking to necessarily imply that one is more significant or prevalent than the others. Similarly, Kleindorfer and Wassenhove (2003) divided the risk types into two ‘supply-demand co-ordination risk’ and ‘disruption risk.’ In essence, what is being proposed is that there are different types of supply chain risk and these may require different approaches to management and resolution, an issue that we explore later in the chapter.